Bangladesh has become one of the first countries to have secured a loan from the Asian Infrastructure Investment Bank (AIIB).

The country will get $165 million from the China-led development bank for a power distribution system upgrade and expansion project.

The board of the bank yesterday approved its first four loans totaling $509 million to finance four projects in four countries. The other countries are Indonesia, Pakistan and Tajikistan, said the AIIB in a statement.

The Bangladesh project will completely be financed by the AIIB, Mohammad Asif-uz-Zaman, additional secretary of the economic relations division, told The Daily Star over phone from Beijing.

He said the loan would have an interest rate of LIBOR plus 1.15 percent and a repayment period of 25 years with five years in grace period.

LIBOR (London Interbank Offered Rate) is the rate at which banks charge each other for short-term loans in the London interbank market. It also serves as a global benchmark for short-term interest rates.

The AIIB has also selected Bangladesh as an alternate director. Asif-uz-Zaman will represent the country.

Three of the four projects are co-financing operations with multilateral development bank partners, said the AIIB statement.

The four loans were approved just six months after the bank's inauguration, and a day before its first annual meeting.

The two-day meeting in Beijing will begin today.

The $165 million loan to Bangladesh for power distribution system upgrade and expansion project has two components to be executed by Bangladesh Rural Electrification Board and Dhaka Electric Supply Company Ltd.

The project is designed to expand electricity coverage by providing 2.5 million new service connections in rural areas, and to upgrade two grid substations and convert 85 circuit-km overhead distribution lines into underground cables in northern Dhaka.

The project will supplement the bank's development partner efforts by providing additional financial resources to connect more rural and urban consumers, further reduce distribution losses, and improve the quality and reliability of power supply in Bangladesh, said the statement. 

The project, upon completion, is expected to benefit about 12.5 million people in rural areas and therefore create a significant and sustained impact on many economic and social dimensions of rural development in Bangladesh.

The three other project are: a $216.5 million loan for a national slum upgrading project in Indonesia, a $100 million loan to finance the Shorkot-Khanewal section of national motorway in Pakistan and a $27.5 million loan for the Dushanbe-Uzbekistan border road improvement project in Tajikistan.

In a statement yesterday, AIIB's President Jin Liqun said, “I am delighted to announce that AIIB's board of directors has today approved the first group of loans.”

He said the projects, which span the energy, urban development and transport sectors, would help to bridge the region's critical infrastructure financing gap and strengthen regional connectivity.

Jin said the bank was very pleased that three of the projects were joint co-financing operations with its development partners namely the Asian Development Bank, the European Bank for Reconstruction and Development and the World Bank.

“This has been an outstanding and tangible demonstration of multilateral cooperation that has expanded the pool of financing available to our joint member countries. We are working on a number of additional projects and look forward to bringing them to our board for its approval later this year.”

DJ Pandian, vice president and the chief investment officer of the AIIB, said the bank placed tremendous importance on ensuring that its investments lead to positive results and improve the lives of millions of people in different regions of Asia.

The bank, which supports infrastructure development and regional connectivity in Asia, is targeting lending of approximately $1.2 billion in 2016.

The AIIB, a global multilateral financial institution, was formally established in December last year.

Despite opposition from Washington, US allies including Britain, Germany and South Korea are among the AIIB's 57 members. The bank expects to lend $10-15 billion a year in its first five or six years.